Wrong, wrong and wrong.
We're all aware of the nasty example of some Muslim extremist terrorist who indiscriminately kills men, women and children in order to make a point, or in order to try to coerce some population or government into changing its ways. But let's consider a few other examples.
A little old lady who lives alone in a rough neighborhood hears breaking glass, goes to investigate, and finds a couple thugs in her kitchen. She happens to have a firearm, and points it at the crooks. Her goal is obviously to instill fear in the minds of the intruders. She is perfectly justified in trying to evoke terror from them, in order to make them behave in a certain way (either leaving, or waiting for the police to come and arrest them).
So is the lady a terrorist? Well, yes and no. She is certainly using "terror" as a tool for controlling other people, but the term "terrorism" usually implies that the intimidation is being done for an "illegal" or immoral end. (Of note, when firearms are used by private individuals to deter crime, it is usually without a shot being fired, showing how effective the terror which brandishing a firearm instills can be.)
As another example, every year, the IRS and the Tax Division of the DOJ carefully decide who to prosecute for "tax crimes," with the stated goal of scaring all the other "taxpayers" into "compliance." They use force (harassment, armed invasions of private homes, confiscation of property, arrests and imprisonment, etc.) against a few, and then publicize those actions, for the purpose of instilling fear into millions of other people who might be thinking of not filing and paying. (The IRS is often surprisingly honest about that goal.)
So are the people who work at the IRS terrorists? Well, yes. They are. They are using violence against victims who haven't hurt anyone else, with the stated goal of intimidating lots of others into handing over lots of money to the government--a specifically political goal. In what way is that not terrorism?
The only reason anyone would fail to see this is if they fall for the notion that, if the terrorists arbitrarily declare their terrorism to be "legal," it suddenly ceases to be bad, and therefore ceases to be terrorism. In other words, because politicians enacted such terrorism via "legislation," and called the terrorism "taxation" and "law," and label those who do not comply as "law-breakers" and "tax cheats," they persuade most people that the perpetrators of what would otherwise obviously be terrorism are the good guys, and any who resist are the bad guys.
Consider another example. In any war, both sides will try to use intimidation to scare the other side into surrendering. Instilling fear and terror into "the enemy" is a tactic that dates back many thousands of years. And, by definition, any rebelling force that does so, since their actions are, by definition, "illegal," would fit into the common definition of "terrorists." For example, the Founding Fathers of this country were all terrorists. They were law-breaking tax cheats who challenged the authority of their king. The fact that they were eventually successful does not change the fact that what they were doing was, by definition, "illegal," not to mention treasonous.
So are Jefferson, Madison and the rest now viewed as terrorists? No. We don't use that label for them because their cause is now viewed as having been just, even though it was obviously "illegal" in the eyes of the regime that ruled them up to that point. (It should also be mentioned that the term "terrorism" usually implies the targeting of innocent civilians, rather than targeting only soldiers.)
All "government" enforcers, from the individual beat cop to the huge federal agencies, use intimidation to control behavior. Just the presence of a police cruiser is supposed to strike fear into the hearts of would-be criminals, to scare them out of committing crimes. And one of the stated goals of catching, prosecuting and imprisoning criminals is to serve as a deterrent to others who might be considering committing similar crimes. And is that bad? Well, yes and no.
It depends upon what counts as "crime." Using fear to prevent people from committing robbery, assault or murder is perfectly justified (and therefore, we don't call it "terrorism"). But the word "crime," to most people, means anything that "government" has declared to be "illegal." So, for example, when the DEA uses openly brutal violence, including killing people, in order to deter people from possessing non-politician-approved substances ("narcotics"), they are viewed as merely enforcing "the law." But does that automatically mean that what they're doing is good?
Less than two centuries ago in this country, those calling themselves "government" said that slavery was "legal," and that trying to help slaves escape was a "crime." The "law enforcers" of that day would catch a runaway slave, and then the master would whip the runaway slave in front of all the other slaves, so they would be terrified of running away. It was all perfectly "legal" at the time. Did that make it right? No. And despite the fact that such torture was "legal," and was done with the assistance of those calling themselves "government," would we not now condemn such actions as being essentially the same thing as "terrorism"--the use of unjustified violence to coerce others to change their behavior?
Therefore, by what measure do we distinguish between "terrorism" and justified defensive force? Whether the force is "legal" can't be the determining factor, since what is "legal" is arbitrarily decided by whoever is claiming to be "government." As history shows all too clearly, it's quite easy to "legalize" evil. (Keep in mind, almost everything done under the Third Reich was "legal," and those who resisted were referred to as "terrorists" by Hitler and his thugs.)
There is only one rational way to distinguish between the sort of unjustified, violent intimidation that deserves to be called "terrorism," and the justifiable use of force or threats of force: Violence--or the threat of violence--is only justified when used against people who have initiated force or fraud. In any other situation, it's not. Now, that sounds so simple and so self-evident that almost anyone would instinctively agree with it. To put it another way, you shouldn't start a fight, and you should only use force to stop the guy who does.
The trouble is, people's belief in "government" and "authority" mangle what would otherwise be a perfectly simple and obvious non-aggression principle. Consider a few examples.
1) Are IRS employees "terrorists" when they use intimidation and fear to coerce millions into handing over money? Absolutely, but most people refuse to see it because the terrorism is "legal." (I have quite a bit of personal experience about this one. My book, "Kicking the Dragon," shows all too clearly the terrorist mindset of many IRS, DOJ and federal court employees.)
2) Are DEA and state narcotics agents "terrorists" when they use overt violence, and massive intimidation and fear to try to coerce people into not possessing non-government-approved substances? Absolutely, but most people refuse to see it because the terrorism is "legal."
3) Are ATF agents "terrorists" when they use overt violence and scare tactics to coerce people into not owning non-government-approved firearms? Absolutely, but even after mass atrocities such as the one which happened in Waco, most people still refuse to see it that way, because that terrorism is "legal."
4) Here's one that lots of people won't like to hear. When American soldiers randomly stop, detain, interrogate, search, and occasionally torture civilians, and otherwise use a show of force to scare, coerce and control people, is that terrorism? Yes. If you doubt it, imagine a foreign occupying army here, doing that to you. Then would you call it "terrorism"? I bet you would. So stop thinking from pack mentality and start thinking from principle.
5) Last but not least, can you name the worst terrorist attack in history? Hint: thousands of civilians were brutally and intentionally murdered, in order to try to coerce a government into changing its ways. No, not 9/11. That was child's play compared to the correct answer. The perpetrator of the top two worst terrorist acts of all time was a group calling itself "The United States Government," which was responsible for the premeditated murder of over fifty times as many civilians as died on 9/11, when that terrorist cult dropped nuclear bombs on the cities of Hiroshima and Nagasaki.
And for all those statists who might read this, and then fume with indignation that I would characterize our noble "leaders," soldiers and "law enforcers" as terrorists, see if you can come up with some way to differentiate between what you call "terrorism," and what the U.S. "government" does on a daily basis. Or is "terrorism" just the word you use when people not on your side do it?